Managing Partner of U.S. Broker-Dealer Charged in Manhattan Federal Court with Allegedly Participating in a Massive International Bribery Scheme

The U.S. Department of Justice on June 12, 2013 released the following press release:

“Defendant Allegedly Participated in Scheme That Generated Broker-dealer More Than $60 Million in Fees for Business Directed by a Senior Venezuelan Banking Official Who Was Allegedly Paid Over $5 Million in Kickback Payments

A managing partner of a U.S. broker-dealer was arrested today on felony charges arising from a conspiracy to pay bribes to a senior official in Venezuela’s state economic development bank, Banco de Desarrollo Económico y Social de Venezuela (BANDES).

Acting Assistant Attorney General Mythili Raman of the Justice Department’s Criminal Division, U.S. Attorney Preet Bharara for the Southern District of New York, and Assistant Director-in-Charge George Venizelos of the FBI’s New York Office made the announcement.

Ernesto Lujan, 50, among others, allegedly arranged the bribe payments to Maria De Los Angeles Gonzalez De Hernandez at BANDES in exchange for her directing BANDES’s financial trading business to the Broker-Dealer. Lujan was arrested this morning in Wellington, Fla., where he resides, and was presented in federal court in West Palm Beach, Fla.

“The huge bribes Mr. Lujan and others allegedly paid funneled millions to his firm and into his own pockets,” said Acting Assistant Attorney General Raman. “Bribery corrupts markets, and this arrest – just the latest in the Department’s recent series of anti-corruption charges in various districts – is yet another demonstration that, at the end of the day, the real dividends bribe payers reap are criminal charges.”

“From his perch as managing partner Ernesto Lujan allegedly engaged in a bribery scheme designed to drum up foreign trading business for his firm,” said U.S. Attorney Bharara. “Along with his alleged cohorts, three of whom were arrested last month, he pocketed millions from the alleged scheme which was executed through kickbacks to a Venezuelan government official and through money laundering.”

“As alleged, Lujan led a conspiracy to bribe a foreign government bank official to steer business to his firm,” said FBI Assistant Director-in-Charge Venizelos. “As previously alleged, much of this trading activity was conducted solely to generate fees for the firm. Lujan personally reaped millions in profits, and used Swiss bank accounts to conceal both the bribes and his own proceeds of the scheme.”

On May 3, 2013, Gonzalez, along with two employees of the Broker-Dealer, Tomas Alberto Clarke Bethancourt and Jose Alejandro Hurtado, were arrested on separate charges relating to this bribery scheme. On May 6, 2013, the government filed a civil forfeiture action in Manhattan federal court seeking the forfeiture of assets held in a number of bank accounts associated with the scheme, including several bank accounts located in Switzerland, and the forfeiture of several properties in the Miami area related to Hurtado that were purchased with his proceeds from the scheme. That same day, the court also issued seizure warrants for multiple bank accounts and a restraining order relating to those Miami properties.

In a separate action, the U.S. Securities and Exchange Commission (SEC) announced civil charges against Lujan.

According to the allegations in the criminal complaint unsealed today, and other documents filed in Manhattan federal court, Lujan, a managing partner of the Broker-Dealer, which was headquartered in New York City, was the branch manager of its Miami offices. In 2008, the Broker-Dealer established a group called the Global Markets Group, which included Lujan, Clarke and Hurtado, and which offered fixed income trading services to institutional clients. One of the Broker-Dealer’s clients was BANDES, which operated under the direction of the Venezuelan Ministry of Finance. The Venezuelan government had a majority ownership interest in BANDES and provided it with substantial funding. Gonzalez, a BANDES official, oversaw the development bank’s overseas trading activity. At her direction, BANDES conducted substantial trading through the Broker-Dealer. Most of the trades executed by the Broker-Dealer on behalf of BANDES involved fixed income investments for which the Broker-Dealer charged the bank a mark-up on purchases and a mark-down on sales.

From December 2008 through October 2010, Lujan, along with Clarke, Hurtado and Gonzalez, allegedly participated in a bribery scheme in which Gonzalez directed trading business she controlled at BANDES to the Broker-Dealer, and in return, agents and employees of the Broker-Dealer, including Lujan, split the revenue the Broker-Dealer generated from this trading business with Gonzalez. During this time period, the Broker-Dealer generated over $60 million in mark-ups and mark-downs from trades with BANDES. Agents and employees of the Broker-Dealer, including Lujan, Clarke and Hurtado, allegedly devised a split with Gonzalez of the commissions paid by BANDES to the Broker-Dealer.

Court records allege that to further conceal the scheme, the kickbacks to Gonzalez were often paid using intermediary corporations and offshore accounts that she held in Switzerland, among other places. For example, at least $9.5 million was transferred from the Broker-Dealer to a Swiss bank account controlled by Clarke, who in turn transferred at least $6.5 million to a Swiss bank account controlled by Lujan. Lujan then allegedly transferred at least $1.5 million of these proceeds to a Swiss bank account controlled by Gonzalez.

Lujan was charged with one count each of conspiracy to violate the Foreign Corrupt Practices Act (FCPA), violation of the FCPA, conspiracy to violate the Travel Act and violation of the Travel Act, which each carry a maximum penalty of five years in prison. He is also charged with conspiracy to commit money laundering and money laundering, which each carry a maximum penalty of 20 years in prison.

This ongoing investigation is being conducted by the FBI, with assistance from the SEC and the Justice Department’s Office of International Affairs. Assistant Chief James Koukios and Trial Attorneys Maria Gonzalez Calvet and Aisling O’Shea of the Criminal Division’s Fraud Section and Assistant U.S. Attorneys Harry A. Chernoff and Jason H. Cowley of the Southern District of New York’s Securities and Commodities Fraud Task Force are in charge of the prosecution.

Douglas McNabb and other members of the U.S. law firm practice and write and/or report extensively on matters involving Federal Criminal Defense, INTERPOL Red Notice Removal, International Extradition Defense, OFAC SDN Sanctions Removal, International Criminal Court Defense, and US Seizure of Non-Resident, Foreign-Owned Assets. Because we have experience dealing with INTERPOL, our firm understands the inter-relationship that INTERPOL’s “Red Notice” brings to this equation.

The author of this blog is Douglas C. McNabb. Please feel free to contact him directly at mcnabb@mcnabbassociates.com or at one of the offices listed above.